The film commences inside a bustling radio broadcast studio, featuring the arrogant and cynical "shock jock" Jack Lucas (played by Jeff Bridges). During a call with a listener, Edwin Malnick (Christian Clemenson), Jack dismisses Edwin's woes over a recent disastrous date, asserting that his social standing prevents any chance of success in the romantic sphere. As Jack's radio show concludes, he returns to his lavish penthouse, where he engages in a brief argument with his girlfriend, who then leaves him. Amid self-reflection punctuated by his catchphrase, “FORGIVE me!!”, Jack is shattered when he learns that Edwin, in despair, went on a shooting spree at a Manhattan restaurant, claiming several lives before taking his own.
Fast forward three years, Jack finds himself off the radio and entrenched in a profound depression. He is now living with Anne Napolitano (Mercedes Ruehl), the owner of a local video store. Jack spends much of his time drowning his sorrows in alcohol and insults a customer, prompting Anne to suggest he rest. That night, an emotionally charged altercation occurs between them as Jack, watching a TV show inspired by his radio days, disparages Anne. With a bottle in hand, he steps outside, only to be mistaken for a homeless man by a child who compassionately offers him a wooden Pinocchio doll.
As he teeters on the edge of despair by the East River, intending to end his life, he finds himself attacked by two men who regard him as a bum. Just as they are about to set him aflame, another homeless man, who introduces himself as Parry (portrayed by Robin Williams), intervenes. With a medieval flair, Parry leads a legion of fellow homeless individuals to save Jack, overwhelming his assailants.
That night, in an astonishing hallucinatory experience, Jack finds himself among Parry’s new companions under a bridge. Parry claims to be on a sacred quest for the Holy Grail, which he believes is hidden within the home of a prominent architect. Parry hints at being tormented by visions of the “little people,” who guide him on his journey, yet he is also haunted by the terrifying figure of the Red Knight, a product of his own mind. The next morning reveals more about Parry's tragic past — after losing his wife during the same incident Jack feels responsible for, he descended into madness.
Motivated by guilt, Jack pledges to support Parry. He concocts a plan to introduce Parry to a woman named Lydia (Amanda Plummer), whom Parry adores. Parry's self-doubt keeps him from approaching her, even as Jack attempts to orchestrate their meeting. The duo embarks on lively adventures across the city, sharing experiences that uplift both men.
The narrative takes a darker turn as Parry's paranoia resurfaces, and he becomes subjected to violence at the hands of the same men who previously targeted Jack. Jack learns of Parry's catatonia following this trauma, and feeling an overwhelming sense of responsibility, he returns to his previous life as a radio host while grappling with his morality and the choices he must face.
Eventually, Jack decides to fulfill Parry’s quest for the Grail, risking everything as he confronts the man's tragic past and the demons that have long shadowed them both. In a poignant climax, Jack presents the Grail to Parry, a symbolic gesture that facilitates Parry’s emotional revival. Jack’s journey culminates in reconciliation with Anne, as they explore the depths of love and forgiveness, culminating in a serene moment where Jack and Parry bask in the warmth of friendship and light-heartedness beneath the vast sky of Central Park, filled with laughter and a sense of renewal.
